Does anyone sincerely believe that US Federal & State Government politicians are capable of instituting sound budgets? The unfortunate and sad truth is that this doesn’t appear to be the case.
While a few months old, the following report, NEW FISCAL YEAR BRINGS NO RELIEF FROM UNPRECEDENTED STATE BUDGET PROBLEMS*” sheds some light on the depth of the fiscal problems faced by nearly all of the US States. Here are some key highlights from the report:
The unprecedented state fiscal problems brought on by the worst decline in tax receipts in decades show no signs of letting up. On July 1 – the start of the fiscal year in most states – an unusually high number of states were still struggling to adopt budgets for fiscal year 2010. Most states have adopted budgets that closed the shortfalls they faced with a combination of federal stimulus dollars, service reductions, revenue increases, and funds from reserves. But these budgets are already falling out of balance as the economy has caused state revenues to decline even more than projected. States will continue to struggle to find the revenue needed to support critical public services for a number of years.
- The states’ fiscal problems will continue into the next fiscal year and likely beyond. At least 36 states have looked ahead and anticipate deficits for fiscal year 2011. These shortfalls total $74 billion – 15 percent of budgets – for the 30 states that have estimated the size of these gaps by comparing expected spending with estimated revenues, and are likely to grow as more states prepare projections and revenues continue to deteriorate.
- Combined budget gaps for the next two fiscal years – those already mostly closed for 2010 and those projected for 2011 – are estimated to total at least $350 billion.
Figure 2’s budget shortfall figures for fiscal years 2009 and 2010 show the national recession’s impact on state budgets. These figures are the total size of the shortfall identified by each state listed. In many cases all or part of this shortfall has already been closed through a combination of spending cuts, withdrawals from reserves, revenue increases, and use of federal stimulus dollars.
Figure 2 also compares the size and duration of the shortfalls that occurred in the recession of the first part of this decade to shortfalls this time. The current recession is more severe – deeper and longer – than the last one, and state fiscal problems have proven to be worse and are likely to remain so.
All but a handful of states have had to face or are still dealing with shortfalls in fiscal year 2010 that total some $168 billion. If, as is widely expected, the economy does not begin to significantly recover until the some time in calendar year 2010 and unemployment remains high through 2010, state shortfalls are likely to be even larger in fiscal year 2011 (which begins in July 2010 in most states). The deficits over the next two fiscal years – 2010 and 2011 – are likely to be more than $350 billion.
Unlike the federal government, the vast majority of states are governed under rules that prohibit them from running a deficit or borrowing to cover their operating expenses. As a result, states have three primary actions they can take during a fiscal crisis: draw down available reserves, cut spending, and raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather the remainder of the recession. The other alternatives – spending cuts and tax increases – can further slow a state’s economy during a downturn, which produces a cumulative negative impact on national recovery as well.
Of course the US Federal Government situation is also very disturbing. Just yesterday, the House approved a $1.9 trillion increase in US debt limit. Per the referenced article:
The huge debt increase, approved 217 to 212, is only enough to keep the government afloat for about another year as it borrows more than 40 cents of every dollar it spends on programs such as defense, health care, feeding the poor, and protecting the environment. The budget tops $3.7 trillion this year, with the deficit approaching $1.6 trillion.
Economists warn that the rapidly rising debt could force interest rates higher and, if left unchecked, could have serious consequences for the economy.
“Defaulting is not an option,” said Representative James P. McGovern, a Worcester Democrat and a member of the Budget Committee. “If the United States defaults, investors will lose confidence that the US will honor its debts in the future.”
The abject lack of fiscal respect that politicians have consistently displayed has brought the country to the edge. This lack of respect is possible largely because the measuring stick with which we transact goods and services (i.e. the US Dollar) is able to be created out of thin air via the Federal Reserve. This fact is obvious when one considers the response to the economic crisis of 2008 which consisted of government bailouts and guarantees. Of course, on the state side there is a lot of talk of the US Federal government coming to the rescue via more money created out of thin air via the Federal Reserve. All of these forces pushing and pulling are adding significant stresses to the overall economy. This is much like the pressure between two large tectonic plates underneath the earth’s crust which eventually result in a large shift causing an earthquake. The financial equivalent of this natural process could be one or a combination of the following – the US loses its AAA credit rating, a stock market crash, dollar devaluation, or a sudden loss of faith in the stability of the economic system as a whole. Either way, the current fiscal status of the US both at the State and Federal level is a dilemma with no easy solution…
UPDATE: Audit the Federal Reserve
- H.R. 1207: Federal Reserve Transparency Act of 2009 now has 317 co-sponsors, flat from 317 previously reported.
- S. 604: Federal Reserve Sunshine Act of 2009 now has 32 co-sponsors, up from 31 previously reported.
Will Gold Reach $15,000? Mike Maloney Offers Up Expert Insights on TheStreet.com
The enemy is at home.flv (2/1/10)
Rep. Mica Encourages Geithner to Resign (1/27/10)
Tough Questions for Geithner on AIG Bailout (1/27/10)
Paulson: Geithner Recuse himself NY Fed – WTH is Dan Jester Goldman Sachs TARP FED Treasury Ties (1/27/10)
AIG Hearing: It Wasn’t My Job, Paulson Says (1/27/10)
Chaffetz: I Was Going to Ask You About 18 Phone Calls You Made to Rahm Emmanuel (1/27/10)
Geithner “I did not sign Recusal Statement” Kaptur MORE BEHOLDEN TO BANKS! (1/27/10)
Lynch to Geithner: It stinks to high heaven what happened here AIG Goldman TARP (1/27/10)
Ron Paul – CNN Newsroom 01/27/10
1/27/10 Ron Paul on Fox Business: Geithner and AIG
Marc Faber on the debt threat (1/22/10)
1/22/2010 Peter Schiff On Fast Money: Is China In A Bubble?
G-7 Pledges to Keep Stimulus Even Amid Budget Stress (2/6/10)
- Group of Seven finance ministers pledged to maintain the flow of stimulus into their economies even as investors focus on mounting budget deficits.
- Nassim Nicholas Taleb, author of “The Black Swan” and a principal at Universal Investments LP in Santa Monica, California, said Feb. 4 that “every single human being” should bet U.S. Treasury bonds will decline, while Pacific Investment Management Co. calls U.K. government bonds “a must to avoid.”
Americans Reject Keynesian Economics (2/5/10)
- Richard Nixon once said, “We’re all Keynesians now.” But that was a long time ago, and it’s certainly not the case anymore (if it ever was).
- While influential 20th Century economist John Maynard Keynes would say it’s best to increase deficit spending in tough economic times, only 11% of American adults agree and think the nation needs to increase its deficit spending at this time. A new Rasmussen Reports national telephone survey finds that 70% disagree and say it would be better to cut the deficit.
Anaemic growth could threaten U.S. Aaa rating – Moody’s (2/4/10)
- If the U.S. economy grows anemically, already stretched government finances will be crimped, potentially putting downward pressure on the top Aaa U.S. rating, said Moody’s Investors Service on Wednesday.
- “The implications would not be good if the U.S. were in for anemic growth for some time to come because the government could have problems for revenue growth,” Hess added.
- Hess warned that U.S. households balance sheets “need to be improved and this will take some time” as Americans reduce high debt levels in the aftermath of the financial crisis and prolonged recession. That process will put a ceiling on consumer spending and potentially restrain growth, he said.
Next in Line for a Bailout: Social Security (2/4/10)
- Don’t look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system.
- A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.
- Instead of helping to finance the rest of the government, as it has done for decades, our nation’s biggest social program needs help from the Treasury to keep benefit checks from bouncing – in other words, a taxpayer bailout.
- No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.
House faces tough vote on $1.9 trillion more debt (2/4/10)
- Facing a politically excruciating vote, House Democratic leaders are counting on new budget deficit curbs to help smooth the way for a bill allowing the government to go $1.9 trillion deeper into debt over the next year – or about $6,000 more for every U.S. resident.
- The debt measure set for a House vote Thursday would raise the cap on federal borrowing to $14.3 trillion. That’s enough to keep Congress from having to vote again before the November elections on an issue that is feeding a sense among voters that the government is spending too much and putting future generations under a mountain of debt to do it.
- “We don’t have a choice,” said Rep. John Tanner, D-Tenn. “We are on an unsustainable march toward a fiscal Armageddon.”
US debt to hit proposed ceiling by end-February: Treasury (2/3/10)
- The US debt is on track to hit a congressionally proposed debt ceiling of 14.3 trillion dollars by the end of February, the Treasury said Wednesday, a day ahead of a key vote to raise it to that level.
- “Based on current projections, Treasury expects to reach the debt ceiling as early as the end of February. However, the government’s cash flows are volatile, making it difficult to forecast a precise date,” the Treasury said in a statement.
Deficits May Alter U.S. Politics and Global Power (2/1/10)
- In a federal budget filled with mind-boggling statistics, two numbers stand out as particularly stunning, for the way they may change American politics and American power.
- The first is the projected deficit in the coming year, nearly 11 percent of the country’s entire economic output. That is not unprecedented: During the Civil War, World War I and World War II, the United States ran soaring deficits, but usually with the expectation that they would come back down once peace was restored and war spending abated.
- But the second number, buried deeper in the budget’s projections, is the one that really commands attention: By President Obama’s own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 – years after Mr. Obama has left the political scene, even if he serves two terms – they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.
Watchdog: Bailouts created more risk in system (1/31/10)
- The government’s response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.
- The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.
- “Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” Barofsky wrote.
Secret Banking Cabal Emerges From AIG Shadows: David Reilly (1/29/10)
- The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.
- Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.
- We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system – apart from the matter of AIG’s bailout — deserves further congressional scrutiny.
- …when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.
Bernanke Wins New Term (1/28/10)
- Ben Bernanke won the backing of the Senate for a second four-year term as chairman of the Federal Reserve by a comfortable margin Thursday. Even with that storm behind him, Mr. Bernanke faces formidable political and economic challenges made tougher by the bruising confirmation fight.
- In the months ahead, Mr. Bernanke must also tackle how and when to raise interest rates, which he pushed down to nearly zero in the financial crisis; and how best to drain the nearly $1 trillion the Fed pumped into the financial system. Making those crucial calls without harming the markets or the economy is “the equivalent of financial brain surgery,” says Gerald Corrigan, a Goldman Sachs managing director and former president of the Federal Reserve Bank of New York.
Senate permits gov’t to borrow an additional $1.9T (1/28/10)
- The Democratic-controlled Senate has muscled through a plan to allow the government to go a whopping $1.9 trillion deeper in debt.
- The party-line 60-40 vote was successful only because Republican Sen.-elect Scott Brown has yet to be seated. Sixty votes were required to approve the increase. The measure would lift the debt ceiling to $14.3 trillion. That’s about $45,000 for every American.
Experts See Another Global Dip Ahead (1/27/10)
Davos Attendees Pin Hopes on Emerging Economies, Saying Debt and Deficits Will Trouble U.S.; Sparring Over Bank Rules
- The global economic recovery could lose pace later this year, dashing hopes for a rapid escape from the deepest downturn of the postwar era, economists and investors said at the World Economic Forum’s annual meeting at this Swiss ski resort.
- Heavy debts will weigh on governments and households in the U.S. and Europe for some time, while hopes for global growth will continue to rest on fast-developing countries such as India and China, predicted participants at the meeting’s opening debate on the economy.
Central banks end US dollar emergency swap lines (1/27/10)
- The Bank of England said Wednesday that it and other major central banks are ending emergency lending arrangements put in place with the U.S. Federal Reserve in the wake of the global credit crisis, citing improvements in financial markets.
- “These lines, which were established to counter pressures in global funding markets, are no longer needed given the improvements in financial market functioning seen over the past year,” the bank said in a statement. “Central banks will continue to cooperate as needed.”
Deficit to hit $1.35 trillion in 2010, CBO says (1/26/10)
Economic growth to remain ‘muted,’ analysts estimate
- The U.S. government will in 2010 record its second-biggest budget deficit since World War II, the Congressional Budget Office estimated Tuesday, while economic growth will probably stay “muted” for the next few years.
- The CBO sees the deficit falling to $980 billion by next year, but only if several tax cuts are allowed to expire. Farther out, the deficit is projected to fall to $480 billion by 2015, also assuming a bevy of tax cuts are allowed to expire.
Debt Burden Now Rests More on U.S. Shoulders (1/22/10)
- THE United States government borrowed more money than ever before in 2009, but its largest lender – China – sharply reduced the amount it was willing to lend.
- The United States Treasury estimated this week that during the first 11 months of last year China raised its holdings of Treasury securities by just $62 billion. That was less than 5 percent of the money the Treasury had to raise.
U.S. Retail Credit Card Defaults Hit Near-Record Levels with No Relief in Sight (1/14/10)
- U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings.
- Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.
Highlights from “The International Forecaster” newsletter (2/3/10)
Published and Edited by: Bob Chapman
- The administration says it will cut non-defense discretionary spending by about 13%, but they just increased such spending by 17%. We might ask why didn’t they just rescind the increase? The reason is there can be no deficit reductions. In fact, if there is not more stimuli added then the economy will dip back into depression. This is the same mistake FDR made in 1937, and as a result America had to create another war to save itself from collapse. FDR’s methods are what are being used today and as in the 1930s, they won’t work today. Both are Keynesian nightmares created to put ultimate power into the hands of the elitists so they can force the world to accept world government. The tactics being used now are the same as in the 1930s, a 2-stage depression to be followed by a WWIII. We are now seeing the 1934 type rebound, that could last a few years, if enough stimuli are supplied. Deficits do not produce a solid recovery; they create a transitory recovery. Business knows this and as a result they won’t commit to expansion. They have no confidence in such plans, because they know once stimulus stops the economy will fall back again. They are also aware that stimulus is inflationary, just as monetization is. As far as the stock market is concerned we could be seeing a replay of 1936. Taxes had already risen by 5%, the deficit fell by more than 50% and the Fed cut back on M3 and raised reserve requirements, all of which was simply too much for the economy to handle. It receded and unemployment rose again. The Fed and the administration are well aware of this and that is why deficit cuts will not come and why more stimuli will be added. The economy is not back to any kind of “normality,” if in fact such a thing exists. We keep on hearing employment is a lagging indicator, when that is untrue. The only thing true about the unemployment numbers is that they are bogus.
- The administration is cutting very little and has no easy way to raise taxes to increase revenues. In addition after losing three straight special elections they’ll be in no mood to raise taxes with November nine months away. As we said earlier the whole Democratic Party is in serious trouble making them lame ducks. Any sort of tax increases will be cloaked in subterfuge. There is no hope of any budget changes for the better. The Democrats and many republicans are doomed and that is good.
- Such unbridled greed came close to bringing down the entire financial system, which American taxpayers have been allowed to pick up the bill for. After all this we see absolutely no regulation in sight and the SEC and the CFTC continue to protect the titans of Wall Street as government looks on in total disinterest. This, of course, omits the Executive Order borne criminality, which has turned our free markets into controlled and manipulated fascist markets. People say what can I do? You can start by throwing almost every incumbent out of office and buy pressing the Senate relentlessly to pass the bill that includes an audit and investigation of the Fed. If you do not do these things you will end up living on your knees enslaved, as will generations to follow. Too big to fail has to be stopped along with moral hazard. Limits have to be put on leverage. The world of derivatives has to be unraveled. If we do not have serious financial reform the markets will continue to self-destruct. How can we conceivably allow hedge funds to remain offshore and unregulated? The FDIC is a joke and perpetually under-funded. Today they have $93 billion in assets with more than 2,000 banks in serious trouble that would cost $1 trillion to bail out. Those funds include $45 billion paid in by banks for their next three year’s dues. Even with taxpayer assistance the private sector cannot recover. It has been just 2-1/2 years since these problems began and Wall Street and banking are right back doing what they did before, wildly speculating. How can the taxpayer continue to fund such insanity? Remember, zero interest rates have nowhere to go but upward. Adding more to the soup 40 states are essentially broke. Do you really think the crisis is over with 22.5% unemployment? We do not think so. There is no easy exit short of a purge of the system, which is inevitable. Any kind of stringent financial reform will bring the system down. Aggressive bank lending would bring about more monetization and more inflation. The markets believe it is back to business as usual. The only events that can bring us back to reality is a purging of the system and the end of Wall Street and the banking control of our country. The revolving door between Washington and NYC has to be dismantled. The credit system is broken and has to be changed and fixed. The shift has begun. The reign of Goldman Sachs over our government is in the process of ending. The successor will be JP Morgan Chase, which has been and will be every bit as bad as Goldman as been. The control is going to change but not the looting of the American people. The changes won’t come and the system will collapse, that is how the elitists retain control over our country. The final war for our freedom is underway.
- Our President’s projected 11% deficit for each of the next two years is equal to the country’s entire economic output. That condition will prevail over the next ten years. This erosion and the ongoing foreign wars will finally destroy America as the world’s preeminent power. Quite frankly, we believe any forecast outside of two years in today’s environment is useless. All we know is we do not see how conditions can improve.